Supermarket Shelf Space in Kenya: Quick Tips
Total Page:16
File Type:pdf, Size:1020Kb
Supermarket Shelf Space In Kenya: Quick Tips By Earnsmart Business Kenya ©2020 By Earnsmart Business Kenya By Earnsmart Business Kenya Continue Earning with Us Page 1 If you have ever tried to get shelf space you know how frustrating it can be. Often, Supermarkets act up with bureaucratic barriers and what seems like a dim view of your product. But before you give up an understanding of the psychology of supermarkets will help. The view among startup manufactures and entreprenures is that if you are selling some products like food items – juices, sauces, cooking oil, water and the like you can’t afford to ignore the supermarkets. As much as that is true, supermarkets especially the big ones, are not always the best of options, and practical, for a small trader without much working capital. The major reason being that supermarkets have some of the longest credit periods; ranging from 90 days to as long as 270 days for some. Are you able to comfortably operate for 3 to 6 months without getting paid? The other drawback is that supermarkets will in a way squeeze your margins because they want the lowest prices possible. This is a big challenge if your products has low margibs . Of course the flip side, which is the advantage of having your products in a supermarket is that you move volumes, and consumers easily discover your products. To compile the tips we talked to a number of supermarket managers, tried to place some products on the shelves, talked to enntreprenures with products on the shelves, observed and did our own research. Let’s start with some dry facts about supermarkets: ✓ There are over 1500 supermarkets in Kenya ✓ Nairobi alone has over 500 businesses licensed as supermarkets Supermarkets can be classified into a) Small Supermarkets occupying between a thousand and 2000 square feet b) Medium and large supermarkets occupying a bigger space and with over 50 employees. ✓ Five supermarkets dominate the market controlling about 30% of sales between them; these are: Nakumatt, Tuskys, Naivas, Ukwala and Uchumi. Ukwala is on its way to being acquired by Tuskys. ✓ Medium size supermarkets tend to dominate in particular regions. Think of Maguna Andu and Maathai supermarkets in central region. Or Peter Mulei, recently rebranded as Mulleys in Machakos and Ukambani. ✓ In Nairobi medium supermarkets include the likes of Home Depot, Ebrahims, Chandarana Eastmatt, Cleanshelf and several others. ✓ Since 2015 supermarkets have had mixed fortunes. Uchumi almost went down due to mismanagement, while Ukwala and Nakumatt have reported losses. Ukwala has since By Earnsmart Business Kenya Continue Earning with Us Page 2 sold a stake to Choppies from Botswana, while Nakumatt as of October 2016 is said to be shopping for a strategic investor. Its important to note that supermarkets are becoming more powerful as more consumers choose them , rather than retail shops and kiosks, as their main venues. This means that they have more say in negotiating for prices and even what to place on the shelves and what not to. Another recent trend is private labels , where supermarkets firms to package products under their own brands. Think Nakumatt Ice Cream, Crisps and so forth. This is usually in partnership with manufcureres. The significance of this is that private lables are more profitable to the supermarkets, and they are taking up more space which otherwise would have been allocated to other brands. And now here are some practical tips to get your products on the shelves: 1. Just like you supermarkets are in it for the money. Forget the buy Kenyan; build Kenya jingles. Supermarkets have no obligation to stock your products simply because it’s made or distributed by you a Kenyan, or because you are a youth or a man or a woman. They make rational decisions based on their profit goals. This is unlike a country like South Africa where supermarkets should stock at least 40% from local producers. 2. Shelf space is limited so when a supermarket owner looks at a shelf vis a vis your product he crudely asks himself “Is this the most profitable product to occupy this space?” Profit is not just in terms of direct margins but also customer satisfaction. Think of it this way you have a new toothpaste called Brushy that you want to supply to the supermarket. You offer a price that will make the supermarket a profit of Kshs. 20 per packet. Then there is Colgate which gives a profit of Kshs.10 per packet. Why will the supermarket not jump at your more profitable Brushy and edge out Colgate? Simply because many consumers are aware of Colgate and trust it more, thus when they find it missing they wont go for unheard of Brushy rather they will shift their shopping to the next supermarket where they are sure to find Colgate and other familiar items. Margins are also important. A supermarket will definitely consider how much it’s likely to make vis a vis related products. However, to insist, the supermarket will not look at margins in isolation but in terms of volumes and consumer satisfaction. By Earnsmart Business Kenya Continue Earning with Us Page 3 3. There are several factors which influence the amount of shelf space a product is allocated .For starters they give you a space according to the type of product. For example detergents, food etc . If the product is fast moving and visible you can get bigger shelf space since supermarkets wouldn't want the customer to miss a basic in demand brand. Space is also allocated according to the size of the product: the bigger the product the lesser the space, unless the product is a basic need. 4. Most entrepreneurs tend to focus on the large supermarkets, of course attracted by their wider reach. But a rule of the thumb is the bigger the supermarket the more the bureaucracy and conditions. However that should not discourage you from approaching them, do it, but don’t ignore the lesser supermarkets. 5. When going to pitch to a supermarket be clear who your target market is. And also show an understanding of the supermarkets target customers. For instance if you are making shoe polish packaged only in 20ml tins, it would be a hard sell in Nakumatt and Chandarana who target the upper middle and high class who prefer to do monthly shopping and thus go for medium and large quantities to last a month. On the other hand if you take the 20ml shoe polish to any of the 7 supermarkets in Kangemi, chances are high they will listen to you. As basic as it may seem understand your market. When you take the ‘wrong’ product to the ‘wrong ‘ supermarket they doubt you, they don’t take you seriously and even if you have another product they already have a dim view of you. Be sure who your target market is. This is not just in size but packaging, product choice, taste and so forth. 6. The process for allocation of a shelf space for new product starts from the retailer's headquarters where you fill some agreements and there are terms you should accept. Among this is the return rule, that is if the product expires on the shelf you will be issued a Goods Return Note (GRN) or if it gets damaged you sign the GRN and take the unwanted products. There are other conditions before being accepted which include having a KEBS mark of quality, PIN and bar code. (See no.7) If the product is accepted and approved at the headquarters, the branch managers get emails and then you start going round the shops supplying. Often you will be required to have a merchandiser to ensure he or she takes orders, signs GRN if any on your behalf and arranging your product on the shelf and brushing off the dust. Retailers consider the brand visibility, demand and even, size and packaging: they reason the more attractive the package, the more likely a product will sell. (See 8) By Earnsmart Business Kenya Continue Earning with Us Page 4 7. Medium and Large supermarkets require you to meet some basic conditions before even considering stocking your product. Some of the conditions are demanded by the law, while others are a way of maintaining standards and possibly eliminating nagging would be suppliers. These conditions are: a) Your business must be fully registered with the registrar of companies. Supermarkets are reluctant to deal with fly by night informal businesses. So make sure your business is registered. It costs between Kshs. 5000 and Kshs.20000 to register depending on the kind of business; partnership, limited company etc and of course if you are doing it yourself or using a lawyer or broker. On average it takes about a month to get registered. b) Your business must have a Kenya Revenue Authority pin number and also (Value Added Tax) VAT number. These are free to acquire from KRA. Many small businesses are reluctant to acquire these so as not to pay tax considering their poor cash flow. But hey if you want to join the big league then you have very few options but to be tax compliant, or at least pretend to be. c) Your product must have a Kenya Bureau of Standards (KEBS) certification. The law demands it. But beyond the law a KEBS certification also it validates the quality of your product. As a new supplier you need all the validation and accreditation you can get. Also consumers are getting more informed and will tend to trust a product with KEBS certification as opposed to one without.